Moody's Upgrades California Art School

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SAN FRANCISCO - The California College of the Arts received an upgrade from Moody's Investors Service ahead of a planned refunding deal.

Moody's upgraded the college's revenue bonds to Baa2 from Baa3 based on its growing enrollment and a demonstrated ability to grow net tuition per student and hold tuition discounting stable, despite the highly competitive niche market.

The agency assigned a stable outlook to the bonds.

"The college has successfully retained recent surpluses to grow liquid financial resources," analysts said in the credit report. "Thoughtful planning and prudent budgeting help mitigate the risks associated with CCA's smaller operating size and highly competitive student market for this specialty arts school."

CCA is an art, design, architecture, and writing school with campuses in San Francisco and Oakland. For the fall 2014 semester, the school's enrollment of 1,940 is 100 students greater than its budget, and represents a 2.6% growth over fall 2013.

The college is planning to refund its fixed rate Series 2005 bonds later this month in an up to $18.5 million, 20-year fixed rate private placement loan with First Republic Bank.

The bank has also agreed to grant the school an additional $7 million in 2017 through a seven years fixed rate loan to refund its Series 2007 bonds when they become callable.

The revenue bonds are a general obligation of the college and are supported by a gross revenue pledge and specific mortgage pledges on CCA's campuses.

CCA has around $42.5 million of debt, which includes around $31.8 million of revenue bonds.

"The stable outlook reflects our expectation of continued strong operations and cash flow that will contribute to financial resources growth," Moody's said. "Also expected are at least stable, enrollment and no near term additional debt issuance or large spend down of financial resources."

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